Growth dilemma
Contours of inequity
The high-skilled workers in the organised sectors are not getting higher wages because the supply of skilled labour is increasing.
The government has certainly made some progress in the alleviation of poverty. Programmes like employment guarantee, subsidised foodgrains to BPL families and loan waiver for farmers have provided relief to the poorest people. But this is not helping establish peace in the countryside. Maoist activities are increasing. The reason may lie in the huge increase in inequality. Businesses are earning huge profits. Results of top companies indicate an increase in profits of about 28 per cent against increase in sales of 2 per cent. Such huge increase in profits means that businessmen are rolling in money. They have the money to shop in air-conditioned malls and travel in private jets or cars costing more than a crore of rupees.
On the other hand stagnant sales mean that people do not have the purchasing power to buy the goods. The poor man living in the slum across the boundary of the shopping mall, or the poor villager who travels to the city is perturbed by this flamboyant display of wealth. The youth are agitated. They are being attracted towards egalitarian Maoist ideology.
Increase in inequality is nothing new. It has been taking place through the ages. It is necessary for a country to deprive the common man of consumption in its quest for economic growth. This is known as ‘primitive accumulation’ in economics. Imagine you are living in a tribal community. Every family has equal plot of land and standard of living of all is almost equal. Now there is a proposal to establish a factory. Community ownership of business has not been successful. And no individual in the tribal community has the money to invest in this. Strict observance of equality will never make it possible for the community to put up a factory and the people will remain ever backward.
In such a situation the chief finds ways of imposing inequality on the people. He asks them to undertake free labour for the establishment of the factory. The chief establishes the factory and becomes rich while the people become poor because of the ‘begar’ that they have to perform. Nevertheless, the factory is established, road is made and jeeps ply on it and development takes place. Such deprivation of the poor is called primitive accumulation. This leads to economic development along with increase in inequality.
Inequality increased at the international level through the same process. Britain forcibly exported the natural resources of colonial India at low prices. India became poor while Britain became rich. The United States practiced the same policy in importing black slaves from Africa. These slaves provided the cheap labour that made it possible for the Americans to invest in industries and in clearing of lands for cultivation in the southern states.
Increasing inequality
This same increase in inequality is taking place in India today. The price of agricultural commodities is at historically low levels. The temporary increase in price in the last one year only very partially compensates for the huge reduction in the last 50 years. Village folk are migrating to the cities in search of better incomes. Inequality between villages and cities is increasing. A similar increase in inequality is taking place within the cities. The wages of urban workers have increased by, say, 20 per cent but the incomes of the politicians, bureaucrats and businessmen have increased 20 times in the same period. This is the true story of 9 per cent growth rate that we have so gloriously attained. I am not denigrating this achievement which is laudable. The point here is that it comes along with a huge increase in inequality which is a natural consequence of economic growth.
Mainstream economists propound that it is necessary to attain 9 per cent growth rate in order to remove poverty. High growth will enable the government to collect more taxes and use the money for running poverty alleviation schemes such as employment guarantee. This is correct as far as poverty reduction is concerned. But it fails on the touchstone of inequality. This policy, in fact, is based on acceptance of increase in inequality. Big companies will be given freedom to undertake production with automatic machines. This will push up the growth rate to 9 per cent. Few high-skilled workers will be employed because of use of automatic machines.
The high-skilled workers in the organised sectors are also not getting higher wages because the supply of skilled labour is increasing. The wages, for example, of the plowshare and the tractor driver are nearly same today—at about Rs 150-200 per day—even though the tractor driver is much highly skilled. This happens because the supply of tractor drivers is more. The tractor driver may produce ten times that of the ploughshare but he gets barely 33 per cent higher wages. Wages are not determined by the productivity of labour. They are determined mainly by supply and demand in the labour market. They remain low because the supply of tractor drivers is large. In the result, the wages of workers remains low all around while the profits of businessmen increase manifold.
We face a difficult challenge. We need to use automatic machines for producing goods at a low cost to stand in the global marketplace. This will lead to a steep increase in inequality and destabilise the society as seen in the Maoist resurgence. The solution, in my assessment, will come from change in the culture of the rich. The rich should lead simple lifestyles and make charity liberally. Then their wealth will not irritate the poor just as the bank balance of the beggar does not irritate the pedestrian. Charity will put money in the hands of the poor and raise their standard of living. The solution will not come through poverty alleviation programmes alone.
